The fact that so many emerging
companies are finding that Going it Alone is a viable option has
ramifications for the large pharmaceutical companies that rely on the
innovation of emerging companies
to augment their pipelines. Competition for deals is intensifying,
and large companies must be proactive in making partnership with
emerging companies earlier in the
game. The last decade has seen a
trend towards increased collaboration between large pharma and
biotech companies and emerging
companies in early drug development. These deals, which include
acquisitions and joint ventures,
eventually provide large companies
with greater stakes in the outcome
of successful and viable new companies. The arrangement ensures
that the emerging companies have
the cash flow earlier on to pursue
innovative research and that the
large pharmacos and biotechs are
given first rights to new products
to bolster their pipelines.

However, this practice may be
affected by the fact that some of
the traditional funders of early-phase research are changing their
investment models; they’re moving away from funding emerging
companies. Instead, in an attempt
to reduce their risk, they are focusing on funding drug development
from early discovery through to
commercialization for already existing companies. This is beginning
to create a funding gap that could
impact creativity and innovation…
which would ultimately be felt by
large companies. We have seen
an increasing number of interest
groups and disease foundations
trying to raise money to bridge
the funding gap for research and
development particularly in rare
diseases and areas of high-unmet
need.

For Venture Capitalists

Over the last five years, the num-ber and value of the first-timelaunches we assessed increased,and this trend is likely to continueinto the future. As a result, therewill be more opportunities forinvestors to fund emerging compa-nies as they transition from mainlyresearch and development compa-nies to full-fledged small pharmaor biotech companies with R&D aswell as commercialization func-tions. Investor companies need tolook at their funding models todetermine if they are positioned tomake the most of these opportuni-ties as they present themselves.

In the past, investors involved in
early-phase drug development
tended to exit somewhere around
Phase II, forcing emerging companies to find alternative sources of
funding or to partner with larger
companies that could support continued development from Phase
III through commercialization.
Given the success of the first-time
launches and the value they are
bringing into the market, investors need to reconsider their exit
strategies. They should determine
if it is perhaps more meaningful to
build on the relationship that they
already have with emerging companies and continue their fund-